QuantumScape(NYSE: QS), a developer of solid-state lithium metal batteries, initially dazzled investors after its public debut in November 2020. It went public by merging with a special purpose acquisition company (SPAC), and its stock opened at $24.80 on the first day before surging to an all-time high of $131.67 a month later.
But today, QuantumScape stock trades at about $5. It lost its luster as investors realized that it would take years for the company to commercialize its batteries and generate meaningful revenue, while rising interest rates highlighted its ugly losses.
Yet QuantumScape is still a divisive stock. The bulls believe it will soar again as it finally ramps up its commercial shipments, but the bears expect it to be crushed by the competition before that happens. So where could its stock end up in a decade?
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According to Straits Research, the solid-state battery market could grow at a compound annual growth rate (CAGR) of 36.4% from 2024 to 2032 as they're used in more electric vehicles, portable electronics, wearables, medical devices, and energy harvesting tools. As an early mover in solid-state batteries, QuantumScape could profit from that secular expansion.
Solid-state lithium-metal batteries are less volatile, more heat resistant, and charge more quickly than traditional lithium-ion batteries. But they're also more challenging to engineer and more expensive to produce. They're currently used in wearables, pacemakers, and smaller devices, but they haven't been mass-produced for EVs yet.
QuantumScape wants to disrupt the EV market with its QSE-5 batteries, which have an energy density of over 800 Wh/L (watt-hours per liter) and can be quick-charged from 10% to 80% in less than 15 minutes. By comparison, most lithium-ion batteries for EVs have an average density of 300-700 Wh/L, and they need 20 minutes to an hour to be quick-charged to 80%.
QuantumScape is also backed by Volkswagen(OTC: VWAP.Y). The German automaker has been co-developing those batteries with QuantumScape for more than a decade, and it even established a new group, PowerCo, to road-test its prototype batteries in 2022. That support could help QuantumScape finally scale up its business and commercialize its first batteries.
To accomplish that ambitious goal, QuantumScape is transitioning from its current Raptor separator process to its more advanced Cobra separator process this year. That upgrade should improve its cell reliability and production yields. It also started to ship the first samples of its QSE-5 batteries to select automakers in the third quarter of 2024.
But with an enterprise value of $2.1 billion, a lot of QuantumScape's future growth is still baked into its stock. Analysts don't expect it to generate any revenue in 2025, and they only expect it to generate $7 million in revenue in 2026.
In its pre-merger presentation, QuantumScape claimed it could commercialize its first batteries in 2024, generate $14 million in revenue that year, and grow its top line at a CAGR of 363% over the following four years to $6.4 billion by 2028.
It's already missed that commercialization target by two years. But if it achieves its first full year of commercial shipments in 2027, generates $14 million in revenue that year, and follows its original outlook, it might just generate $6.4 billion in revenue by 2031. If QuantumScape hits that target and grows its revenue at a CAGR of 30% over the following four years (which would be comparable to Straits Research's forecast for the broader market), it could generate $18.5 billion in revenue by 2035.
If that happens and it trades at a more reasonable 10 times sales by then, it would be worth $185 billion -- which would represent an 88-bagger gain in just a decade. That might be possible if it scales up its business, Volkswagen installs its batteries in its own EVs, and other EV makers follow that lead.
However, investors should also remember that it faces stiff competition from similar start-ups like Blue Solutions as well as big automakers like Toyota and Nio in the solid-state battery race. If those rivals scale up their businesses before QuantumScape, they could emerge as the leaders of this budding market.
QuantumScape won't go bankrupt anytime soon. It claims to have enough cash to last through at least 2028, and it's still firmly supported by Volkswagen. So assuming it sticks with its roadmap and avoids any more delays, it could grow like a weed over the next decade. It could also eventually be acquired by Volkswagen.
If that happens, it could generate some massive multibagger gains over the next decade. But if it breaks its promises again, its stock could drop even lower. So for now, it's still a speculative play that you should only buy with cash you can afford to lose.
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